Six Cement Corp plants up for sale

Mumbai: The government has revived a plan to sell factories of Cement Corp. of India Ltd. The state-owned firm will now put up for sale six of its 10 cement plants—one each in Madhya Pradesh, Karnataka, Haryana and Delhi, and two in Chhattisgarh.

The Board for Industrial and Financial Reconstruction (BIFR), which looks into sick public sector units, has reconstituted an asset sale committee to arrive at a valuation for the six plants, which have not been functional for close to a decade.

Cement Corp. officials refused to talk on the valuation. An industry analyst estimated the six defunct plants could be worth over Rs 1,700 crore.

“The plants will be sold. An asset sale committee headed by the IFCI Ltd chairman is looking into the matter,” said an official in the department of heavy industries (DHI), requesting anonymity as he is not authorized to speak with the media. DHI is a part of the ministry of heavy industries and public enterprises.

IFCI, a government-owned financial consultancy, has mandated SBI Capital Markets Ltd, the merchant banking wing of the nation’s largest lender State Bank of India, to find buyers. IFCI and SBI Capital Markets declined to comment.

The asset sale committee has also appointed three agencies to arrive at a valuation of the plants, a Cement Corp. official said, but declined to name the agencies. The official declined to be identified.

Another DHI official, also requesting anonymity, said there was an attempt to revive the plants in 2006, but now it has been decided to sell them. The 2006 revival package had envisaged waiving the interest on government loans, shuttering Cement Corp.’s ailing units, and converting its loans into redeemable preference shares.

The second DHI official said the original plan was to sell seven Cement Corp. plants, but the proposed sale of the Adilabad plant in Andhra Pradesh has been put on hold. “The plant is embroiled in a court case lodged by its employees, and the government is looking to revive the plant now,” said the Cement Corp. official cited earlier.

The six plants to be sold include a cement-grinding unit in Delhi.

According to Cement Corp., the process of fixing the reserve price and finding buyers will be done in about two months. Earlier in 2008, the government had asked for bids, but the quoted prices were too low and none of the bids were accepted. This time around, bidding will be done electronically.

Collectively, the production capacity of the six Cement Corp. plants is 2.65 million tonnes per year. “On an average, the cost of buying a readymade cement production capacity will be $110-120 per tonne,” said V. Srinivasan, a cement sector analyst at Angel Broking Ltd. At this price, these plants may fetch Rs 1,600-1,759 crore.

Merchant bankers are bullish on consolidation in the cement sector. “No one is interested in setting up new plants right now as there have been delays in getting clearances from the government,” said an investment banker with a domestic firm. He did not want to be named as he is working on one such mandate.

A few large firms are scouting to buy plants to consolidate their positions and increase their market share, according to him. Stressed plants in central India are actively being considered by these players, he said.